Microsoft ditches system that ranks employees against each other

To the joy of many current and former Microsoft employees, the company announced Tuesday that it’s getting rid of its controversial stack-ranking review system, the practice of ranking employees against each other during performance reviews.

The system has long been the object of critical barbs by those who believe it lowered employee morale and stymied innovation.

Under stack ranking, managers each year were required to put set percentages of their team’s employees into one of five groups, ranging from top performers to bottom performers.

The ranking affected everything from promotions to bonuses, and underperformers typically ended up seeking jobs in other parts of the company or elsewhere.

Even if all members of a team performed well that year, the manager was required to designate a set percentage as underperformers — a practice that drew fire from employees. Many thought the system rewarded internal politicking, withholding of information and back-stabbing, rather than rewarding innovation or cooperation.

That review system has been blamed by some for causing Microsoft to fall behind other tech companies in the past decade in key areas such as mobile computing.

In an email to employees Tuesday, Lisa Brummel, Microsoft’s head of human resources, wrote that the new review process will now have “no more curve.”

“We will continue to invest in a generous rewards budget, but there will no longer be a predetermined targeted distribution,” she wrote. “Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.”

In addition, she wrote, there will be “no more ratings. This will let us focus on what matters — having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.”

The change comes as the company undergoes a huge reorganization, begun in July, designed to foster more collaboration and to increase Microsoft’s pace in delivering products and services.

Brummel said in an interview that the reorganization provided “the perfect opportunity to implement these changes. You always want the people plan to align with the business strategy of the company. Now is a beautiful confluence of those things.”

Old plan resulted in sabotage

The change was met largely with joy.

Hillel Cooperman worked at Microsoft for more than nine years, most recently running the Windows users experience team, before leaving in 2006 to start his own boutique software-design firm, Jackson Fish Market.

At one time during his Microsoft tenure, he managed a team of more than 130 people.

The stack-ranking system, he said, “actively worked against my ability to incentivize my people to work together. You can’t say to people: ‘Work together,’ and then tell them in the same breath: ‘By the way, you’re competing against each other for rewards.’ ”

The system “absolutely” resulted in people sabotaging each other, he said.

“If you’re all great performers, it’s even worse,” he said. “How do you make yourself stand out in that environment? You can try to stand out or you can try to put the guy next to you down.”

One year, Cooperman said, he fought to institute an all-or-nothing bonus system for his team. Either the team would reach its goal and all the people on his team, including himself, would get a certain bonus amount — or no one got anything.

“The fighting I had to do to reward my team with a teamwide bonus — I can’t even tell you how difficult it was,” he said.

“Terrible culture”

Mark Relph, an entrepreneur in residence at startup accelerator GrowLab, worked at Microsoft for more than 15 years until earlier this year.

Most recently, he led Microsoft’s team responsible for building relationships with the venture-capital community and venture-backed startups.

When he heard Tuesday that Microsoft was getting rid of its stack-ranking system, he tweeted: “Microsoft eliminates the review system that created such a terrible culture in so many parts of the company. Too little too late?” and “People have asked if I’d go back to MSFT. Top of the list why not was that review system. Glad to see it gone. Was terrible from day 1.”

Stack ranking has a place in some companies, Relph said. But implementing it in a large corporation and over a long time is difficult to do.

Plus, the system gave some outsiders a negative perception of Microsoft’s company culture, he said.

“Connect” meetings with workers

Microsoft CEO Steve Ballmer, who announced in August that he would be retiring once his successor is chosen, has defended stack ranking in the past, saying: “I think everybody wants to work in a high-performance culture where we reward people who are doing fantastic work, and we help people who are having a hard time find something else to do.”

But Ballmer also said, after the announcement of the company reorganization: “Whether our existing performance-management system needs to change to meet the goal of fostering collaboration is something that Lisa Brummel would take up.”

Brummel said the stack-ranking system was one of several review systems the company used over the past two decades.

Each of those systems “seemed to be right for the time in which they were implemented,” she said. “This big move to something very different from what we’ve had is just that. It’s not saying one system is better than another. It’s what system aligns best with what the company needs to get done and what we need to do to go forward.”

The new system relies on more direct meetings — called “Connect” — between managers and their employees in which employees will set down their core priorities, what they plan to do until their next meeting, and what they’ve done to meet those commitments.

Each division decides how many such Connect meetings its employees will have, with a minimum of two each year.

“What you end up with is a collection of feedback that’s closer to the time it happened,” Brummel said. “It’s an opportunity to collect more feedback, more frequently, rather than trying to recollect once a year.”

That’s necessary, she said, because Microsoft is moving to a more “rapid delivery cadence,” where it’s delivering updates to its products and services far more frequently than in the past.

The company’s compensation budget remains the same, and employees and managers will still meet around August and September to discuss compensation.

The difference is now “there’s no review write-up attached to it,” Brummel said. “The compensation is then based on the sequence of Connects over the year.”

Brummel said she was confident that implementing the new review system immediately is the right move, despite the continuing search for a new CEO who might want to put another system into place.

The company “has a new strategy,” she said. “We’re moving forward with it. All the divisions are lining up behind what we need to get accomplished. There’s no reason people programs shouldn’t be doing the same thing.

“I’m betting [the new CEO] will say it’s a good thing,” Brummel continued. “If they don’t say it’s a good thing, we’ll be back at some point in time trying to do something different. But I think it’s our responsibility from our human-resources perspective to help the company move forward.”